Real estate investment trusts (REITs) and the corresponding exchange traded funds are often vulnerable to rising interest rates, a theme that is playing out this year, but there are some corners of the REIT universe that could prove sturdy going forward.
The iShares Core U.S. REIT ETF (NYSEARCA: USRT) has traded slightly lower year-to-date. USRT tracks the FTSE NAREIT Equity REITs Index, a cap-weighted index designed to measure the performance of U.S. listed equity real estate investment trusts, excluding timber, infrastructure and mortgage REITs. Still, it is important to note that interest rates are not the sole determinant of REIT performance.
“Real estate securities in the Residential, Office, Retail and Industrial sectors may stand to benefit with US interest rates on the rise, says new research from global index provider FTSE Russell and the Nareit,” according to a new note from FTSE Russell.
USRT charges just 0.08% per year, or $8 on a $10,000 investment, making it one of the more cost-effective options in the REIT ETF universe. The fund allocates nearly 35% of its combined weight to retail and residential REITs.
More ‘USRT’ ETF Advantages
“Rising interest rates in the US tend to go hand-in-hand with overall improving macro market conditions. It is these same improving macro market conditions that tend to cause improvements in occupancy, rent growth and net operating income for real estate securities, which is reflected in stronger long-term performance for the RORI sector,” said Brad Case – SVP, research & industry information, Nareit.